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Columnist H. James Harrington

Photo: Scott Paton, publisher

  
   

The Real Bottom Line
Improvement is meaningless when the status quo is flawed.

Stanley A. Marash, Ph.D.
smarash@qualitydigest.com

 

As part of its quality training and consulting responsibilities, my company asked thousands of senior executives and their subordinates from around the world, "What percent of your work day is spent on nonvalue-added activities?" Although individual responses ranged from as low as 10 percent to as high as 90 percent, the average lies between 40 and 60 percent, indicating that upper management spends about half its time performing tasks such as responding to crises; reading unwanted mail, memos, e-mail, etc; following up on problems; recovering from problems; rereading already-edited documents (for the second, third or fourth time); and attending rerun meetings (for the second, third or fourth time) that take too long and don't result in action.

If we extrapolate this--which is always risky--we can infer that most companies contain twice as many people, offices, desks, computers and phones as they really need to run effectively and efficiently.

How have we allowed this level of waste to exist for so long? One reason is that the companies to which we compare ourselves often operate just as inefficiently; thus, benchmarking doesn't always produce an incentive to improve. Unfortunately, companies from other industries or countries might be managing this problem much more effectively and, in the process, taking away our business.

Effective change management must improve a company's financial profile. It does this by eliminating, or at least significantly reducing, sources of nonvalue-added activities and focusing resources on improving products and services.

Recent exercises in so-called "downsizing" or "rightsizing" responded to excesses that have existed for decades. However, these painful cutbacks caused severe crises in many companies because they reduced staff without eliminating the source of the problem: excessive nonvalue-added efforts. In fact, downsizing increases nonvalue-added costs, due to the extra responsibilities put on the remaining staff.

Nonvalue-added time is responsible for a significant part of the nonquality cost all companies face. Most manufacturing companies equate product scrap cost with nonquality cost, but they completely ignore wasted time as a significant factor. In fact, many components of nonquality cost are strategically buried in a company's standard cost system.

For example, if 50 percent of a person's time is spent on nonvalue-added activities, then it takes two people, two desks, two computers, two telephones--literally two of everything--to do the job that one person should be able to do. Hence, finance has created a system that says, in effect, $2 equals $1. As long as we continue to spend this inflated $2 on every task, there's no perceived problem. The standard says we should be spending $2, and the variance reports confirm that, indeed, we're spending $2. Unfortunately, as Joseph M. Juran would say, we've disconnected the alarm signals, so nobody takes any action.

Crises tend to manifest themselves when nonquality cost approaches some larger value--say $3 or more rather than the anticipated $2. In these cases, most companies would view a return to the $2 cost as an improvement; it's actually only a return to the inefficient status quo. Real improvement occurs only when we reduce the $2 to closer to $1.

In most companies, management systems haven't been planned and designed. Instead, they've simply evolved, with new procedures, practices and forms to meet each new situation. Often, this approach comes at customers' expense.

The change management concept can be thought of as a variant of quality assurance, assuming that the term is regarded in its broadest sense. Quality system designs are the products of:

Determining customer needs and wants

Converting customer needs and wants into a product or service concept

Establishing process and product specifications that, when met, result in a product or service that satisfies customer needs and wants

Reducing process variability to exceed customer expectations

Continual improvement is the process of making incremental improvements from $2 to $1, the real cost. Although we might not know a process's true cost, effective continual improvement will move us toward the goal.

Many people working on teams have asked me, "What will we do when we solve all our problems?" In response, I usually introduce the concept of "breakthrough." The real $1 cost is predicated on the specifics of a company's current design. Breakthrough occurs by getting "out of the box" (i.e., changing raw materials, service models, process flows and methodologies) in order to achieve results representing order-of-magnitude returns on current products or services. This approach requires that companies provide continual feedback on improvements so that the next version of their product or service--or their new product--shows the benefits of what the companies have learned. This is managing change.

About the author

Stanley A. Marash, Ph.D., is chairman and CEO of The SAM Group, which includes STAT-A-MATRIX Inc. and Oriel Inc. This article is adapted from Marash's upcoming book, Fusion Management. Note: Fusion Management is a trademark of STAT-A-MATRIX Inc. ©2002 STAT-A-MATRIX Inc. All rights reserved. Letters to the editor regarding this column can be e-mailed to letters@qualitydigest.com.